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A federal tax credit is now available to employers affected by Hurricane Harvey, Irma or Maria.

The Employee Retention Tax Credit can be utilized by businesses left inoperative by the hurricanes’ devastation.

The credit allows employers to claim a tax credit equal to 40% of up to $6,000 in wages paid to an employee if their location of employment was in an applicable disaster area. The credit also applies to wages paid during the time that the business remained inoperative.

The credit is part of the Disaster Tax Relief and Airport and Airway Extension Act of 2017, which was signed into law September 29. Eligible areas are those declared hurricane disaster areas by the federal government before September 21, 2017.

Businesses that were or remain inoperative during the following time periods may qualify for the Employee Retention Tax Credit:

Hurricane Harvey: August 23, 2017 – January 1, 2018

Hurricane Irma: September 4, 2017 – January 1, 2018

Hurricane Maria: September 16, 2017 – January 1, 2018

The maximum credit per employee works out to be $2,400 ($6,000 times 40%). Here’s an example of how it could work:

A business is an eligible employer in the Hurricane Harvey disaster zone. The business has two eligible employees, A and B, to whom it paid qualified wages of $4,000 and $7,000 respectively. The business is entitled to a total credit of $4,000; $1,600 for the wages paid to A ($4,000 × 40%) and $2,400 for $6,000 of the wages paid to B ($6,000 × 40%).

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This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.